Multinational corporations will have a tougher time securing damages against countries where they do business, thanks to a small but important provision buried in the newly inked Trans-Pacific Partnership.
On Monday, the United States and 11 other countries announced a successful breakthrough on the long-gestating TPP, a landmark agreement to ease trade barriers and regulatory hurdles that will open new markets to multinational companies. U.S. President Barack Obama touted the globe-spanning pact’s labor and environmental provisions, calling them the strongest such commitments for a trade agreement in history.
Progressive trade groups and some libertarian trade experts, meanwhile, are far less sanguine. As it was hashed out over the years, largely in secret, the tentative pact was slammed as an economic loser for American workers and poor countries, and a victory for the financial and pharmaceutical industries, due largely to its regulatory and intellectual property provisions.
But critics can take some solace in their long-sought victory to curb a little-known but major piece of the global free trade system known as investor-state dispute settlement. Essentially, the system, embedded in trade agreements for years, allows companies or investors to sue foreign governments or states that enforce regulations they accuse of cutting into their profits. Prominent lawmakers like Sen. Elizabeth Warren are among critics who argue that investor-state dispute resolution creates a private judicial system for corporations, one policed by shadowy tribunals, manned by corporate lawyers, and rife with numerous conflicts of interest. These cases are heard, with little transparency, in closed tribunals like the World Bank’s International Centre for the Settlement of Investment Disputes.
The final deal reportedly includes substantial changes to the investor-state process. A key change: Companies would have to prove all elements of their damages’ claims, which could effectively make it easier for tribunals to side with the states being sued. In addition, the new agreement would also ease the process of dismissing frivolous claims and enact rules preventing conflicts of interest among attorneys who hear cases. And in a more targeted reform, tobacco companies will also be excluded from the process, preventing them from using the forum to sue nations that pass anti-smoking laws, according to the New York Times.
The changes aren’t meant to suggest that multinationals never have a legitimate axe to grind against governments or that the global trade system doesn’t need some sort of mechanism to ensure some level of fairness. But the process by which that mechanism currently operates, the TPP acknowledges, needs some serious work.
As Foreign Policy wrote back in March, the settlement process for investor-state disputes — a basic feature of most trade agreements since the 1960s — received little attention, in large part because companies rarely used the rules against countries where they were doing business. According to the U.N., fewer than 100 claims were made between 1959 and 2002.
Then, from 2003 to 2012, the cumulative number of cases suddenly jumped to 514. But that began to change over the past decade, as multinational firms from wealthy countries increasingly began filing investor-state cases, largely against poorer countries laden with extractive resources, like Australian mining company OceanaGold’s suit against the government of El Salvador, or Occidental’s case against Peru.
While these changes are important, they’re more or less along the lines of what trade watchers expected and aren’t nearly as comprehensive as critics would’ve liked, said one trade expert who preferred to remain on background since the final text of the agreement has yet to be unveiled. “Based on early reports of the TPP [investor-state] language, the changes from past agreements appear to be more like tinkering around the edges, rather than a comprehensive reform,” he wrote in an email.
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